Kenya's biggest mobile phone operator Safaricom is opposed to a proposed tax rise on mobile phone based cash transfers that its chief finance officer said on Monday would discourage the drive towards modern payments systems.

In last week's budget speech, Finance Minister Henry Rotich proposed increasing the excise duty on mobile transfers to 12% from 10% as part of broader measures to raise an extra 27.5 billion shillings ($272 million) in state revenues.

The government has been encouraging cashless payments to improve security and reduce the risk of fraud.

Kamath said hiking duty on mobile payments would likely mostly hurt the poor, most of whom do not have bank accounts and rely on mobile transfer services like Safaricom's M-Pesa.

Don't want to reverse financial inclusion gains

M-Pesa, Safaricom pioneered in 2007, now has more than 26 million users in the East African nation of 45 million, handling billions of shillings in daily transfer volumes.

The model has been copied in other regional markets and beyond.

"It would be unfortunate to reverse the gains we have made through mobile led financial inclusion in the past few years," Kamath said.

Rotich justified the proposed tax increases, which also included a new "Robin Hood" tax of 0.05% on bank transfers of above 500,000 shillings, by saying they would be used to fund free health care for all.

The tax proposals in the budget have to be debated and adopted by parliament before they take effect.